Five Key Developments in the U.K. Home Shopping Market

Explosive growth in the U.K. home shopping market, driven mainly by homegrown companies, looks set to continue in the foreseeable future. American presence to date remains concentrated mainly in the hands of veterans who have been established since the early 1990s, before the current boom began.

Ten years after my company, Mokrynski International, opened its London branch, here are the five biggest things that have changed in the UK home shopping market:

The market has grown. Verdict Research estimates the U.K. direct mail market at $10.4 billion in 2005, up from $2.5 billion in 1995. And these figures do not include pure e-commerce companies.

Catalogs have gone multichannel. The Internet has been good for catalogs. They have the product and fulfillment capability to deliver a competitive offer. The Internet changed the perception that home shopping was not fashionable. Companies such as Amazon.com have created a powerful halo effect on the sector. Catalog mailings are still the main driver of online sales. Some companies have made major expansions in the retail sector, while others have been content to have only a few shops in a geographically tight area.

Profitable companies have emerged. Ten years ago there were very few companies large enough to be profitable. Today companies such as Boden have grown organically to exceed $180 million in sales and earn significant profits. Others have grown by acquisition, picking up struggling businesses cheaply and leveraging their infrastructure to deliver growth and profits.

The number of lists has grown. The list market has developed from the early 1990s, when there were hardly any mail order buyer files on the market. Today our company alone manages 50 such lists. Privacy concerns have restricted the size of these lists, but the universe of names will grow following the most significant change in the cost structure of catalogs in the U.K. in the past 10 years, namely…

Postage costs are going to drop dramatically. From Aug. 21, 2006, the basis for postage charges will change significantly. Pricing in Proportion (PIP) will benefit most catalog companies. For many this will mean a reduction in postage of 25%-30%. In 1995 postage rates for a typical 92-page catalog were about twice as expensive in the U.K. than in the U.S. After PIP, these costs would be almost the same.

During the next 10 years, I expect more merger and acquisition activity and renewed interest from venture capital companies. E-commerce will continue to be the fastest-growing sector. And I expect more growth, as the niche home shopping companies challenge existing retailers with unique product, better service, and smarter marketing.

Ray Morris-Hill is president of Mokrynski International. He can be reached at rmorris-hill@mokrynski.co.uk.